S&P/NZX Indices Rejiggered; Serko Makes it to Midcap Index while NZR Moves to Small-cap

  • September 08, 2020 11:18 PM NZST
  • Team Kalkine
S&P/NZX Indices Rejiggered; Serko Makes it to Midcap Index while NZR Moves to Small-cap

Summary

  • Rejiggering of stocks can provide opportunities for investment to retail investors.
  • SKO has been added to S&P/NZX 50 & S&P/NZX 50 Portfolio Index and S&P/NZX MidCap Index.
  • NZR has been removed from S&P/NZX 50 & S&P/NZX 50 Portfolio Index and S&P/NZX MidCap Index.
  • The outlook of SKO looks promising as the travel industry improves.

Recently, S&P Dow Jones Indices announced changes in S&P/NZX indices, which would be coming in to effect at the open of trading on September 21, 2020. Serko Limited (NZX: SKO) was added to S&P/NZX 50 & S&P/NZX 50 Portfolio Index and S&P/NZX MidCap Index. However, it was removed from S&P/NZX SmallCap Index. The New Zealand Refining Company Limited (NZX: NZR) was removed from S&P/NZX 50 & S&P/NZX 50 Portfolio Index and S&P/NZX MidCap Index. However, NZR was added to S&P/NZX SmallCap Index.

A Quick Look at the Results

The New Zealand Refining Company Limited (NZX: NZR) posted Net Profit after Tax of $4.2 million for the year ended December 31, 2019 as compared to $30 million in FY18. The company’s stock fell ~37.14% as compared to the S&P/NZX MidCap Index (Gross with imputation) return of 2.49% in the past 6 months.

Key Data (Source: Thomson Reuters/Refinitiv)

Key Data (Source: Thomson Reuters/Refinitiv)

On the other hand, the stock of Serko Limited outperformed the S&P/NZX MidCap Index (Gross with imputation). The company’s stock gave a total positive return of 14.82% as compared to the S&P/NZX MidCap Index (Gross with imputation) return of 2.49% in the past 6 months. The first three-quarters of FY20 were showing good monthly revenue growth, and the company also achieved some key milestones. Total operating revenue for the year to 31 March 2020 grew by 11% to $25.9 million from $23.4 million in the same period a year ago. Total income from all sources was up by 9% to $26.8 million from $24.6 million in the prior year.

Key Data (Source: Thomson Reuters/Refinitiv)

Key Data (Source: Thomson Reuters/Refinitiv)

What Will Be The Impact on Investors?

Many stock investors watch NZX indices carefully for cues in the market. The minute a periodic rejig is carried out in the NZX, retail investors are concerned as they closely look at the stocks forming part of these benchmark indices.

When a stock enters or goes out of the index, many domestic and global index funds change their portfolio as they imitate the benchmark indices. Therefore, changes in S&P/NZX indices can influence the sentiments of the investors.

Generally, buying stocks that enter the index can be a good strategy. However, before taking any position on the stocks, it is recommended to have a quick look at the performance of the company and how the company is expected to perform moving forward.

What are the future prospects of SKO and NZR?

Serko Limited

The company considers itself to be well-positioned for growth when the travel industry recovers, and trading conditions start to improve. It has a strong hold in Australasia, with its major transactions being domestic and Trans-Tasman in the home markets. It is now mainly concentrating on domestic travel within North America, where it continues to add resellers to its platform and maintain development work to localise content in that region. The company also has a strong balance sheet as well as ongoing commitment to investment, which will help existing and prospective customers.

‘Booking.com for Business’ white-label is now active in Ireland and in the United Kingdom, and its agreement with Booking.com offers an opportunity to continue to grow use of the Zeno booking tool internationally.

Impact of COVID-19 on SKO

To stop the spread of coronavirus, many countries implemented lockdown in their countries which caused dramatic travel reduction in March 2020. By the end of March 2020, the company faced daily transaction volumes decline of about 90% as compared to the equivalent days in March 2019.

However, the company now believes that Australian and New Zealand domestic and trans-Tasman travel markets are poised to recover more quickly than international routes outside of Australasia. The company stated that travel volumes gradually started to recover in the month of May 2020, reflecting easing of domestic travel restrictions in NZ. SKO is well financed after completion of oversubscribed capital raise of $45 Mn in the month of November 2019, with cash balances up from $15.7 Mn in the previous year. Net funds received post capital raising costs were $43.2 Mn. Excluding these funds, the company’s net cash burn for the year, including capitalised development, stood at $16.5 Mn. Notably, cash balances, at 31 March 2020, were $42.4 Mn.

New Zealand Refining Company Limited

Earlier, the company has made an announcement about strategic review to decide optimal business model as well as capital structure for assets to maximise “through the cycle” returns to the shareholders as well as deliver competitive, secure fuel supply to NZ.

The first phase of strategic review consisted extensive engagement with Government, customers, and other stakeholders in order to identify all of the options which are available. The company will also develop various plans to simplify refinery operations and structurally reduce operating costs to improve the near-term viability of its current business model.

 

 


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